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Analysis: The Co-operatives Act three years on

Three years ago, the Co-operative and Community Benefit Societies Act came into effect. It was a landmark piece of legislation for societies, bringing together and simplifying 17 separate pieces of law. We look at how the sector has benefited, work still to be done and highlight areas for your co-op to consider.

Simplicity

One of the main purposes of the legislation was to bring law on co-operative and community benefit societies into one place. For new and existing societies, and organisations providing them with advice, this has made it easier to locate, understand and follow regulations affecting them.

For government meanwhile, it gives greater clarity on the laws affecting societies and the areas where more needs to be done to create a level playing field with other legal forms. Successful lobbying earlier this month, for societies to be treated in the same way as companies around audit requirements, was made easier by the Act, for example.

Awareness

Before 2014 the complex array of legislation affecting societies made it hard for other organisations to understand what was required to start and run a society. The consolidation into one act makes it easier for advisers and intermediary bodies to understand the legal form.

Over the last three years there have been a number of developments that have taken place only because of the Act. The Charity Commission has published guidance for charitable societies that pay interest on share capital. And the Financial Conduct Authority (FCA) published guidance setting out its approach to the registration of co-operative and community benefit societies, which while causing controversy and concern during the consultation phase, has resulted in a clearer more codified regulatory regime.

Growth

The new legislation wrapped up a range of reforms in early 2014, including a much-needed change to the amount of withdrawable share capital members were allowed to invest in their co-op – from an anachronistic £20,000 to £100,000.

Co-ops of all kinds have begun to take advantage of the change, with farmer owned co-ops bringing more capital into their businesses from their members, to a new generation of community share issues which are raising higher amounts of finance thanks to the option for greater individual investments from individuals or organisations.

The reforms also gave struggling societies recourse to creditor voluntary arrangements or administration, providing a chance of recovery rather than having to dissolve. A vital consequence of this is that societies are now fully covered by the Pension Protection Fund.

More to do

It is a common misconception that the Co-operative and Community Benefit Societies Act created the hard legal distinction between co-operatives and community benefit societies. Some stakeholders have found this to have caused new legal and regulatory obstacles for societies that seek to combine social purpose and mutuality. In fact, this change was made by another piece of legislation, a Private Members Bill, enacted immediately before the consolidation act.

That said, we share the view that legislative development may be required to better accommodate the vital combination of mutuality and social purpose.

We also believe government should:

Further update and refine the audit requirements for small societies

Remove the dysfunction in the community benefit society asset lock regulations which prevents societies with a community benefit asset lock adopting a stronger charitable asset lock

Provide a digital system for societies to more easily file with the FCA Mutuals Team, leading to more timely updating of the Mutuals Register and free, more accessible and machine-readable public information on societies

Consult on whether to introduce an optional statutory asset lock for co-operative societies and take legislative action to achieve this if there is support for doing so

What your co-op can do

The Act brought with it a small requirement and a big opportunity.

1. If you haven’t already, make sure you have updated your rules to comply with the new Act. It is good practice to review your rules every few years and the changes are simple to make.

2. Explore whether your co-op would benefit from the extended £100,000 withdrawable share capital limit. It might require a small change to your rules but the impact on the capital available to your co-op could be huge.

Co-operatives UK can help you to explore what’s appropriate for your co-op and amend your rules as needed. You can contact us on 0161 214 1750 or email [email protected].